scm and e-business

8/8/2019 Scm and E-business

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Iqra UniversityIqra UniversityIqra UniversityIqra University

Supply Chain ManagementSupply Chain Management

And EAnd E--BusinessBusiness


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SCM Improvement PrinciplesSCM Improvement Principles

What Can BeWhat Is

The Seven Principles of Supply Chain Management

Segment customers based upon service needs

Customize the logistics network

Listen to the signals of the marketplace and plan

accordingly

Differentiate products closer to the consumer

Source strategically

Develop a supply-chain-wide technology strategy

Adopt channel spanning performance measures


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The Bullwhip EffectThe Bullwhip EffectThe Bullwhip EffectThe Bullwhip Effect

The bullwhip Effect is a major cause of higher costs and

inefficiencies in supply chains. It describes how small fluctuationsin demand at the customer level are amplified as orders pass upthe supply chain through distributors, manufacturers, andsuppliers.

As an example, consider disposable diapers. Babiesgenerally consume diapers at a more or lessconsistent rate when aggregated over a largegroup of customers. Nevertheless, order fluctuationsinvariably become considerably larger as onemoves upstream in this chain.

The bullwhip Effect is a major cause of higher costs and

inefficiencies in supply chains. It describes how small fluctuationsin demand at the customer level are amplified as orders pass upthe supply chain through distributors, manufacturers, andsuppliers.

As an example, consider disposable diapers. Babiesgenerally consume diapers at a more or lessconsistent rate when aggregated over a largegroup of customers. Nevertheless, order fluctuationsinvariably become considerably larger as onemoves upstream in this chain.

Consequences of the Bullwhip Effect include excess/ fluctuatinginventories, shortages/stockouts, longer lead times, highertransportation and manufacturing costs, and mistrust between

supply chain partners

Consequences of the Bullwhip Effect include excess/ fluctuatinginventories, shortages/stockouts, longer lead times, highertransportation and manufacturing costs, and mistrust between

supply chain partners


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Supply Chain upstream ActivitiesSupply Chain upstream ActivitiesSupply Chain upstream ActivitiesSupply Chain upstream Activities

We do it all for you! McDonalds

Have it your way Burger King

We do it all for you! McDonalds

Have it your way Burger King

In most supply chains, the upstream activities respond to forecast, whilesomewhere on the downstream side the chain waits for orders to beplaced. Consider these two former fast slogans

In most supply chains, the upstream activities respond to forecast, whilesomewhere on the downstream side the chain waits for orders to beplaced. Consider these two former fast slogans

Build to stock VS Build to Order


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INTEGRATING OPERATIONS MANAGEMENTWITH OTHER FUNCTIONSINTEGRATING OPERATIONS MANAGEMENTWITH OTHER FUNCTIONSINTEGRATING OPERATIONS MANAGEMENTWITH OTHER FUNCTIONSINTEGRATING OPERATIONS MANAGEMENTWITH OTHER FUNCTIONS

Customer choices introduce complexityCustomer choices introduce complexity

product variety, demand uncertainty, variableproduct variety, demand uncertainty, variable

capacity requirementscapacity requirements

Mass customization is replacing mass production inMass customization is replacing mass production inmany industriesmany industries

There is more opportunity to coordinate activitiesThere is more opportunity to coordinate activities

because of information systemsbecause of information systems

Supply chain management has become a criticalSupply chain management has become a criticalaspect of business successaspect of business success


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SUPPLY CHAIN MANAGEMENT: FROM HENRY FORD TO ESUPPLY CHAIN MANAGEMENT: FROM HENRY FORD TO E--COMMERCECOMMERCESUPPLY CHAIN MANAGEMENT: FROM HENRY FORD TO ESUPPLY CHAIN MANAGEMENT: FROM HENRY FORD TO E--COMMERCECOMMERCE

Ford motor company did everything from mining toFord motor company did everything from mining to

final assembly of its Model T vehicles in the earlyfinal assembly of its Model T vehicles in the early

1900s1900s

allowed coordination of all sequentially relatedallowed coordination of all sequentially relatedactivities for large efficiency gainsactivities for large efficiency gains

very difficult to accommodate product variety orvery difficult to accommodate product variety or

make model changesmake model changes


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SUPPLY CHAIN MANAGEMENT: FROM HENRY FORD TO ESUPPLY CHAIN MANAGEMENT: FROM HENRY FORD TO E--COMMERCECOMMERCESUPPLY CHAIN MANAGEMENT: FROM HENRY FORD TO ESUPPLY CHAIN MANAGEMENT: FROM HENRY FORD TO E--COMMERCECOMMERCE

Other factors leading to division of supply chainsOther factors leading to division of supply chains

technology, economies of scale, need for focus intechnology, economies of scale, need for focus in

operationsoperations

Supply chain improvementsSupply chain improvements Just in Time (JIT) manufacturingJust in Time (JIT) manufacturing

Lean productionLean production


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SUPPLY CHAIN MANAGEMENTDECISIONS:SUPPLY CHAIN MANAGEMENTDECISIONS:

CONFIGURATION OF THE SUPPLY CHAINCONFIGURATION OF THE SUPPLY CHAIN


CONFIGURATION OF THE SUPPLY CHAINCONFIGURATION OF THE SUPPLY CHAIN

what the product service bundle will includewhat the product service bundle will include

((manufacturing to stock & manufacturing to ordermanufacturing to stock & manufacturing to order

what portion of bundle will be outsourcedwhat portion of bundle will be outsourced

where facilities will be located and capacitieswhere facilities will be located and capacities what technologies will be usedwhat technologies will be used

how supplierhow supplier--customer communications will becustomer communications will be

handledhandled

the expectations to which suppliers and customersthe expectations to which suppliers and customers

will be heldwill be held


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COORDINATION OF THE SUPPLY CHAINCOORDINATION OF THE SUPPLY CHAIN


COORDINATION OF THE SUPPLY CHAINCOORDINATION OF THE SUPPLY CHAIN

determining when to provide products and servicesdetermining when to provide products and services

and in what quantitiesand in what quantities

ensuring suppliers are able to provide the valueensuring suppliers are able to provide the value

required of themrequired of them setting appropriate levels for capacity, inventorysetting appropriate levels for capacity, inventory

and lead timeand lead time

communicating demand, performance expectationscommunicating demand, performance expectations

and performance results with suppliers andand performance results with suppliers andcustomerscustomers


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IMPROVEMENTOF THE SUPPLY CHAINIMPROVEMENTOF THE SUPPLY CHAIN


IMPROVEMENTOF THE SUPPLY CHAINIMPROVEMENTOF THE SUPPLY CHAIN

installing Enterprise Resource Planning (ERP)installing Enterprise Resource Planning (ERP)

systems or other information technologiessystems or other information technologies

streamlining the channels of supplystreamlining the channels of supply

changing technologies or planning systems tochanging technologies or planning systems toimprove quality, lead time, cost or serviceimprove quality, lead time, cost or service

redesigning the product service bundle to make itredesigning the product service bundle to make it

easier to provide or of greater value to theeasier to provide or of greater value to the

customercustomer


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SupplySupply--Chain Costs as a Percent of SalesChain Costs as a Percent of SalesSupplySupply--Chain Costs as a Percent of SalesChain Costs as a Percent of Sales

All industryAll industry

AutomobileAutomobile

FoodFood

LumberLumber

PaperPaper

PetroleumPetroleum

TransportationTransportation

52%52%

67%67%

60%60%

61%61%

55%55%

79%79%

62%62%

Industry Percent of Sales


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11%

31%

58%

Material

Dir Wages

Other

71%

16%13% COGS

Payroll

Other

83%

9%8% COGS

Payroll

Other

ManufacturingManufacturing

WholesaleWholesale

RetailRetail

Material Costs inMaterial Costs inSupplySupply--ChainChain

Material Costs inMaterial Costs inSupplySupply--ChainChain


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Global SupplyGlobal Supply--Chain IssuesChain IssuesGlobal SupplyGlobal Supply--Chain IssuesChain Issues

Supply chains in a global environment must be:Supply chains in a global environment must be:

Flexible enough to react to sudden changes inFlexible enough to react to sudden changes inparts availability, distribution, or shippingparts availability, distribution, or shippingchannels, import duties, and currency rateschannels, import duties, and currency rates

Able to use the latest computer and transmissionAble to use the latest computer and transmissiontechnologies to schedule and manage thetechnologies to schedule and manage the

shipment of parts in and finished products outshipment of parts in and finished products out Staffed with local specialists to handle duties,Staffed with local specialists to handle duties,

trade, freight, customs and political issuestrade, freight, customs and political issues


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Plans to help achieve company missionPlans to help achieve company mission

Affect longAffect long--term competitive positionterm competitive position

Strategic optionsStrategic options

Many suppliersMany suppliers

Few suppliersFew suppliers

Keiretsu networkKeiretsu network

Vertical integrationVertical integration Virtual companyVirtual company Plan

1995 Corel Corp.

SupplySupply--Chain StrategiesChain StrategiesSupplySupply--Chain StrategiesChain Strategies


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SupplySupply--Chain StrategiesChain StrategiesSupplySupply--Chain StrategiesChain Strategies

Negotiate with many suppliers; play one supplier against anotherNegotiate with many suppliers; play one supplier against another Develop longDevelop long--term partnering arrangements with a few suppliersterm partnering arrangements with a few suppliers

who will work with you to satisfy the end customerwho will work with you to satisfy the end customer

Vertically integrate; buy the actual supplierVertically integrate; buy the actual supplier

KeiretsuKeiretsu -- have your suppliers become part of a company coalitionhave your suppliers become part of a company coalition Create a virtual company that uses suppliers on an asCreate a virtual company that uses suppliers on an as--needed basis.needed basis.


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Many sources per itemMany sources per item

Adversarial relationshipAdversarial relationship

ShortShort--termterm

Little opennessLittle openness Negotiated, sporadic POsNegotiated, sporadic POs

High pricesHigh prices

Infrequent, large lotsInfrequent, large lots

Delivery to receiving dockDelivery to receiving dock 1995 Corel Corp.

Many Suppliers StrategyMany Suppliers StrategyMany Suppliers StrategyMany Suppliers Strategy


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1 or few sources per item1 or few sources per item

Partnership (JIT)Partnership (JIT)

LongLong--term, stableterm, stable

OnOn--site audits & visitssite audits & visits Exclusive contractsExclusive contracts

Low prices (large orders)Low prices (large orders)

Frequent, small lotsFrequent, small lots

Delivery to point of useDelivery to point of use

1995CorelCorp.

Few Suppliers StrategyFew Suppliers StrategyFew Suppliers StrategyFew Suppliers Strategy


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Tactics for Close Supplier RelationshipsTactics for Close Supplier RelationshipsTactics for Close Supplier RelationshipsTactics for Close Supplier Relationships

TacticTactic Reduce total number of suppliersReduce total number of suppliers

Certify suppliersCertify suppliers

Ask for JIT delivery from keyAsk for JIT delivery from key

supplierssuppliers

Involve key suppliers in newInvolve key suppliers in new

product designproduct design

Develop software linkages toDevelop software linkages tosupplierssuppliers

ResultsResults Average 20% reduction in 5 yearsAverage 20% reduction in 5 years

Almost 40% of all companiesAlmost 40% of all companiessurveyed were themselves currentlysurveyed were themselves currently

certifiedcertified About 60% ask for thisAbout 60% ask for this

About 54% do thisAbout 54% do this

Almost 80% claim to do thisAlmost 80% claim to do thisAbout 50% claim thisAbout 50% claim this


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Raw Material

(Suppliers)

BackwardBackward

IntegrationIntegration

CurrentCurrent

TransformationTransformation

ForwardForward

IntegrationIntegration

Finished GoodsFinished Goods

(Customers)(Customers)

Ability to produce goodsAbility to produce goods

previously purchasedpreviously purchased

Setup operationsSetup operations

Buy supplierBuy supplier

MakeMake--buy issuebuy issue

Major financial commitmentMajor financial commitment

Hard to do all things wellHard to do all things well

Vertical Integration StrategyVertical Integration StrategyVertical Integration StrategyVertical Integration Strategy


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Forms of Vertical IntegrationForms of Vertical Integration

Iron Ore

Steel

Automobiles

Distribution

System

Dealers

Silicon

Integrated

Circuits

Circuit Boards

Computers

Watches

Calculators

Farming

Flour Milling

Raw Material

(Suppliers)

Backward

Integration

Current

Transformation

Forward

Integration

Finished Goods

(Customers)Baked Goods


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Vertical Integration Can be Forward or BackwardVertical Integration Can be Forward or BackwardVertical Integration Can be Forward or BackwardVertical Integration Can be Forward or Backward

Vertical IntegrationVertical Integration Examples of Vertical IntegrationExamples of Vertical Integration

Raw material (suppliers)Raw material (suppliers) Iron oreIron ore SiliconSilicon FarmingFarming

Backward IntegrationBackward Integration SteelSteelCurrent TransformationCurrent Transformation AutomobilesAutomobiles Integrated CircuitsIntegrated Circuits FlourFlour

MillingMilling

Forward IntegrationForward Integration DistributionDistribution

SystemSystem

Circuit boardsCircuit boards

Finished goods (customers)Finished goods (customers) DealersDealers Computers, watches,Computers, watches,calculatorscalculators

BakedBakedGoodsGoods


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Japanese word for affiliated chainJapanese word for affiliated chain

System of mutual alliances andSystem of mutual alliances and

crosscross--ownershipownership

Company stock is held by allied firmsCompany stock is held by allied firms

Lowers need for shortLowers need for short--term profitsterm profits

Links manufacturers, suppliers, distributors, &Links manufacturers, suppliers, distributors, &

lenderslenders Partnerships extend across entire supply chainPartnerships extend across entire supply chain

Keiretsu Network StrategyKeiretsu Network StrategyKeiretsu Network StrategyKeiretsu Network Strategy


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Virtual CompaniesVirtual CompaniesVirtual CompaniesVirtual Companies

Companies that rely on a variety of supplierCompanies that rely on a variety of supplierrelationships to provide services on demand.relationships to provide services on demand.

Also known as hollow corporations, or networkAlso known as hollow corporations, or network

corporationscorporations


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1995 Corel Corp.

Virtual Company StrategyVirtual Company StrategyVirtual Company StrategyVirtual Company Strategy

Network of independent companiesNetwork of independent companies

Linked by technologyLinked by technology

PCs, faxes, Internet etc.PCs, faxes, Internet etc.

Each contributes core competenciesEach contributes core competencies Typically provide servicesTypically provide services

Payroll, editing, designingPayroll, editing, designing

May be long or shortMay be long or short--termterm

Usually, only until opportunity is metUsually, only until opportunity is met


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Managing the SupplyManaging the Supply--ChainChainManaging the SupplyManaging the Supply--ChainChain

Options:Options:

PostponementPostponement

Channel assemblyChannel assembly

Drop shippingDrop shipping

Blanket ordersBlanket orders

Invoiceless purchasingInvoiceless purchasing

Electronic ordering and funds transferElectronic ordering and funds transfer

Stockless purchasingStockless purchasing StandardizationStandardization

Internet purchasing (eInternet purchasing (e--procurement)procurement)


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Managing the SupplyManaging the Supply--ChainChain -- Other OptionsOther OptionsManaging the SupplyManaging the Supply--ChainChain -- Other OptionsOther Options

Establishing lines of credit for suppliersEstablishing lines of credit for suppliers

Reducing bank floatReducing bank float

Coordinating production and shipping schedules withCoordinating production and shipping schedules with

suppliers and distributorssuppliers and distributors Sharing market researchSharing market research

Making optimal use of warehouse spaceMaking optimal use of warehouse space


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Successful SupplySuccessful Supply--Chain Management Requires:Chain Management Requires:Successful SupplySuccessful Supply--Chain Management Requires:Chain Management Requires:

A mutual agreement on goalsA mutual agreement on goals

TrustTrust

Compatible organizational culturesCompatible organizational cultures


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ORGANIZATION STRUCTUREORGANIZATION STRUCTUREORGANIZATION STRUCTUREORGANIZATION STRUCTURE

SUPPLY CHAIN MANAGEMENTSUPPLY CHAIN MANAGEMENT


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1-38 2001 The Gillette Company

GSCM Mission

The Gillette Company will be as highly

recognised and admired by our customers,

shareholders, and employees for SupplyChain performance as we are for our

product development and support of globalbrands. We will become World Class in

Planning & Executing Product Deliveryfrom Source to Customers Shelf.


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Managing Director

Chief Executive

CFO/Finance

Director

Sales

Director

Supply Chain

Director

Operation

Director

Marketing

Director

Secretary

Procurement

Manager

Warehouse

Manager

Production

Control

H. R.

Director

Imports

Local

Contract

R. M.

P. M.

F. S.

MRP

MRPM

Outsource

Expediting

Manager

Transportation

CRM

Documentation

ORGANIZATION STRUCTURE SUPPLY CHAIN MANAGEMENT


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Market Distribution Operating ConcernsMarket Distribution Operating ConcernsMarket Distribution Operating ConcernsMarket Distribution Operating Concerns

Market Distribution:

Activities related to providing customer service. Requires performing

order receipt and processing, deploying inventories, storage and

handling, and outbound transportation within a supply chain. Includesthe responsibility to coordinate with marketing planning in such areas

as pricing, promotional support, customer service levels, delivery

standards, handling return merchandise, and life-cycle support. The

primary market distribution objective is to assist in revenue generation

by providing strategically desired customer service levels at the lowest

total cost.


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Manufacturing Support Operating ConcernsManufacturing Support Operating ConcernsManufacturing Support Operating ConcernsManufacturing Support Operating Concerns

Manufacturing Support:

Activities related to planning, scheduling, and supporting

manufacturing operations. Requires master schedule planning and

performing work-in-process storage, handling, transportation, and timephasing of components. Includes the responsibility for storage of

inventory at manufacturing sites and maximum flexibility in the

coordination of geographic and final assemblies postponement

between manufacturing and market distribution operations.


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Procurement Operating ConcernsProcurement Operating ConcernsProcurement Operating ConcernsProcurement Operating Concerns

Procurement:

Activities related to obtaining products and materials from outside

suppliers. Requires performing resource planning, supply sourcing,

negotiation, order placement, inbound transportation, receiving andinspection, storage and handling, and quality assurance. Includes the

responsibility to coordinate with suppliers in such areas as scheduling,

supply continuity, hedging, and speculation, as well as research

leading to new sources or programs. The primary procurement

objective is to support manufacturing or resale organizations by

providing timely purchasing at the lowest total cost.


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Mission of Purchasing

The mission of purchasing is to sensethe competitive priorities necessary foreach major product/service (low

production costs, fast and on-timedeliveries, high quality /services, andflexibility) and to develop purchasing

plans for each major product/servicethat are consistent with operationsstrategies


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Mission of PurchasingMission of PurchasingMission of PurchasingMission of Purchasing

Develop purchasing plans for each major product orDevelop purchasing plans for each major product orservice that are consistent with operations strategies:service that are consistent with operations strategies:

Low production costsLow production costs

Fast and on

Fast and on--time deliveriestime deliveries

High quality products and servicesHigh quality products and services

FlexibilityFlexibility


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Purchasing ManagementPurchasing ManagementPurchasing ManagementPurchasing Management

Maintain data base of available, qualified suppliersMaintain data base of available, qualified suppliers

Select suppliers to supply each materialSelect suppliers to supply each material

Negotiate contracts with suppliersNegotiate contracts with suppliers

Act as interface between company and suppliersAct as interface between company and suppliers

Provide training to suppliers on latest technologiesProvide training to suppliers on latest technologies


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Purchasing vs. ProcurementPurchasing vs. Procurement

Purchasing is normally associated with a functionalPurchasing is normally associated with a functionalactivityactivity

Procurement/Sourcing should be viewed as a strategicProcurement/Sourcing should be viewed as a strategic

activity for the business.activity for the business.


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Purchasing vs. Sourcing (contd)Purchasing vs. Sourcing (contd)

Purchasing Mentality Sourcing Mentality

One contract at a time Continual Improvement

Win-lose Win-win

Immediate returns Long-term perspective

Secretive Trusting

Current needs can be met Strategic fit exists

Lowest purchase price Total cost of ownership

Multiple suppliers Supply-base reduction

Infrequent interaction Frequent interaction

Criticism Constructive evaluations

Buyer-sales relationship Cross-functional relationship

Safety in numbers Safety in knowledge

Quality inspected Quality at source

Inventory as safeguard Information as safeguard


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Supplier Development Through ProcurementSupplier Development Through Procurement

The Procurement Viewpoint

Supplier Purchaser Procurement Initiative

Marketing Response

Supplier PurchaserMarketing Initiative

Purchasing Response

The Marketing Viewpoint


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Importance of SourcingImportance of Sourcing

In the average manufacturing firm purchased goodsIn the average manufacturing firm purchased goodsand services account for55% of every sales Dollarand services account for55% of every sales Dollar

Direct labor costs account for only about 10% of theDirect labor costs account for only about 10% of the

sales dollarsales dollar


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Procurements Potential PayoffProcurements Potential Payoff

Beginning PositionBeginning Position

SalesSales $100,000,000$100,000,000

Purchases(55%)Purchases(55%) 55,000,00055,000,000

Labor (15%)Labor (15%) 15,000,00015,000,000

Other (22%)Other (22%) 22,000,00022,000,000

PrePre--tax profit (8%)tax profit (8%) 8,000,0008,000,000


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Procurements Potential PayoffProcurements Potential Payoff

Reduce

urchasecost

b 10%

I crease

sales b 68%

Reduce labor

cost b 36%

ales $100,000,000 $168,000,000 $100,000,000

Purchases 4 , 00,000 2,400,000 ,000,000

Labor 15,000,000 25,200,000 ,600,000

Other 22,000,000 36, 60,000 22,000,000

Pre-tax

Profit

13,500,000 13,440,000 13,400,000


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Major Categories for the Components ofTotal Cost of OwnershipMajor Categories for the Components ofTotal Cost of OwnershipMajor Categories for the Components ofTotal Cost of OwnershipMajor Categories for the Components ofTotal Cost of Ownership

Pre-transaction Components1. Identifying need

. Investigating sources

. Qualifying sources

. Adding supplier tointernal systems

5. Educating :supplier in firms operationsfirm in suppliers operations

Post-transaction Components1. Line fallout

. Defective finished goodsrejected before sale

. Field failures

. Repair/ replacement in field5. Customer goodwill/ reputation

of firm6. Cost of repair parts7. Cost of maintenance and repairs

Transaction Components1. Price

.Order placement/ preparation

. Delivery/ transportation

. Tariffs/ duties5. Billing/ payment

6. Inspection7. Return of parts8. Follow-up and correction

Total Cost of Ownership


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Major Trends in ProcurementMajor Trends in Procurement

Fewer sources of supply will be usedFewer sources of supply will be used

Buyers will be more concerned with final customer satisfactionBuyers will be more concerned with final customer satisfaction

Buyers will focus on lead supplier relationshipsBuyers will focus on lead supplier relationships

Buyers will drive shorter cycle timesBuyers will drive shorter cycle times Design engineers and buyers will be part of sourcing teamsDesign engineers and buyers will be part of sourcing teams

Global sourcing will increaseGlobal sourcing will increase

ee--procurement will have a major impactprocurement will have a major impact--not all of it will benot all of it will bepositive for supply chain integrationpositive for supply chain integration

buying exchangesbuying exchanges auction sitesauction sites


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EE--ChemicalsChemicalsEE--ChemicalsChemicals


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Advantages of Centralized PurchasingAdvantages of Centralized PurchasingAdvantages of Centralized PurchasingAdvantages of Centralized Purchasing

Buying in large quantitiesBuying in large quantities -- better pricesbetter prices

More clout with suppliersMore clout with suppliers -- greater supply continuitygreater supply continuity

Larger purchasing departmentLarger purchasing department -- buyer specializationbuyer specialization

Combining small ordersCombining small orders -- less order cost duplicationless order cost duplication Combining shipmentsCombining shipments -- lower transportation costslower transportation costs

Better overall controlBetter overall control


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Purchasing ProcessPurchasing ProcessPurchasing ProcessPurchasing Process

Material RequisitionMaterial Requisition

Request for QuotationsRequest for Quotations

Select Best SupplierSelect Best Supplier

Purchase OrderPurchase Order

Receive and Inspect GoodsReceive and Inspect Goods

From purchasing,From purchasing,

to potential suppliersto potential suppliers

From any department,From any department,to purchasingto purchasing

Based on quality, price,Based on quality, price,

lead time, dependabilitylead time, dependability

From purchasing,From purchasing,

to selected supplierto selected supplier

From supplier, to receiving,From supplier, to receiving,

quality control, warehousequality control, warehouse


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Content of Material RequisitionContent of Material RequisitionContent of Material RequisitionContent of Material Requisition

Requisition no.Requisition no.

Requisition dateRequisition date Item master codeItem master code

Description of material or contentDescription of material or content

Used in productUsed in product

Unit of measureUnit of measure SpecificationSpecification

Lead timeLead time

Sourcing data :supplier or producerSourcing data :supplier or producer

Mode of transportMode of transport Economic order lot size (packing unit)Economic order lot size (packing unit)

Shelf life restrictionShelf life restriction

Material handling requirement (control temperature)Material handling requirement (control temperature)

Documents to accompany with the materialDocuments to accompany with the material


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Item master codeItem master code Quality control analysis days (quarantine)Quality control analysis days (quarantine)

Reorder quantityReorder quantity

Maximum inventoryMaximum inventory

Standard priceStandard price Duty and sales tax and other border crossing charges dataDuty and sales tax and other border crossing charges data

Clearing agent or mode of transportation while handlingClearing agent or mode of transportation while handlinglocallylocally

Certificate of originCertificate of origin

Labeling specificationLabeling specification

Any special handling restriction etc.Any special handling restriction etc.

Required dateRequired date

Authorized signature etc.Authorized signature etc.


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Item master codeItem master code Capital goodsCapital goods

Equipment, machinery, installation, parts,Equipment, machinery, installation, parts,subassemblysubassembly

Method of deliveryMethod of delivery

Maintenance, preMaintenance, pre--post, after sales service,post, after sales service,annual preventive, accidental,annual preventive, accidental,

Financial package, (supplier credit, leasing,Financial package, (supplier credit, leasing,consignment sales, wet leasing etc.)consignment sales, wet leasing etc.)

InsuranceInsurance

Commissioning, trial,Commissioning, trial,


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Content of quotationContent of quotation-- invitationinvitationContent of quotationContent of quotation-- invitationinvitation

Will be address to the enlisted supplierWill be address to the enlisted supplier

Date of quotationDate of quotation

Deadline for the quotation to be receivedDeadline for the quotation to be received

All the details as mentioned on the companies master dataAll the details as mentioned on the companies master data

Financial and payments procedureFinancial and payments procedure

Method of paymentMethod of payment

Term of paymentTerm of payment

Negotiable documentsNegotiable documents

Companies bankers (L/C, Contract, Usance,)Companies bankers (L/C, Contract, Usance,)

Bullet delivery, or partial shipment allowedBullet delivery, or partial shipment allowed Penalty clausePenalty clause

Margin or deposit with the tender or bank guaranteeMargin or deposit with the tender or bank guarantee

InsuranceInsurance

Title of good transferTitle of good transfer


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Content of quotationContent of quotation-- invitationinvitationContent of quotationContent of quotation-- invitationinvitation

Tentative date of intimation or opening of quotation.Tentative date of intimation or opening of quotation.

Is it a revolving contract or one time deliveryIs it a revolving contract or one time delivery Condition for the visit of siteCondition for the visit of site

Specimen samplesSpecimen samples

Condition for the approval of sample etc.Condition for the approval of sample etc.

Capital goodsCapital goods

Turn keyTurn key

InstallationInstallation

TrainingTraining

After sale serviceAfter sale service

Maintenance contractMaintenance contract

Free maintenance periodFree maintenance period

Pregnancy period before the deliveryPregnancy period before the delivery

Supplier creditSupplier credit

Leasing facility etc.Leasing facility etc.


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Selection of supplierSelection of supplier sourcingsourcingSelection of supplierSelection of supplier sourcingsourcing

Bench mark for spread sheet analysisBench mark for spread sheet analysis

Lead timeLead time

Location of sourcing siteLocation of sourcing site

LocalLocal

ImportsImports

InIn--house configuration,house configuration,

OutsourcingOutsourcing

Importing in bulk or mixImporting in bulk or mix

Term offeredTerm offered

Price (rupees, usd, euro, sterling)Price (rupees, usd, euro, sterling)

Credit (local L/C, contract, letter of aware nessCredit (local L/C, contract, letter of aware ness Loading and unloadingLoading and unloading

TransportationTransportation

InsuranceInsurance

Freight collect, freight prepaidFreight collect, freight prepaid


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Selection of supplierSelection of supplier sourcingsourcingSelection of supplierSelection of supplier sourcingsourcing

Bench mark for spread sheet analysisBench mark for spread sheet analysis

Term offered (more)Term offered (more) Lot sizeLot size

Negotiation documentation chargesNegotiation documentation charges

L/c opening commission on beneficiary accountsL/c opening commission on beneficiary accounts

Accessibility (quick response, emergency, replenishmentAccessibility (quick response, emergency, replenishment Past experiencePast experience

CredibilityCredibility financial, data from the contemporariesfinancial, data from the contemporaries

Maintenance service post deliveryMaintenance service post delivery

After sale service

After sale service

Turn keyTurn key ------projectsprojects

Implementation, installation, trial commissioning , etc.Implementation, installation, trial commissioning , etc.

Configuration, source key, parachute clause, divorce, noticeConfiguration, source key, parachute clause, divorce, noticeperiod etc.period etc.


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Purchase orderPurchase orderPurchase orderPurchase order

Date of orderDate of order

Purchase order numberPurchase order number

Reference (indent number or confirmation)Reference (indent number or confirmation)

Maximum detail from item master code.Maximum detail from item master code.

Financial termsFinancial terms

Delivery dateDelivery date

Method of shipmentMethod of shipment

Lot sizeLot size

Partial shipmentPartial shipment

Maintenance contractMaintenance contract Freight and other chargesFreight and other charges

Margin, advance, guarantee, l/c contract, letter of awarenessMargin, advance, guarantee, l/c contract, letter of awarenesscommitment, other terms and conditions,commitment, other terms and conditions,

Documentation requiredDocumentation required


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Purchase orderPurchase orderPurchase orderPurchase order

A

uthorizedA

uthorized Any special term (preAny special term (pre--shipment samples, qualityshipment samples, quality

control specification, standards,)control specification, standards,)

Validation dataValidation data

Shelf lifeShelf life

GuaranteeGuarantee

Insurance conditionInsurance condition

Any special mode of handlingAny special mode of handling

Loading unloadingLoading unloading

Freight etc.Freight etc.


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Allegations of improper Behaviour by BuyerAllegations of improper Behaviour by BuyerAllegations of improper Behaviour by BuyerAllegations of improper Behaviour by Buyer

In exchange for cash and gifts, allowing supplier toIn exchange for cash and gifts, allowing supplier tostore tools and park vehicles on company propertystore tools and park vehicles on company property

and awarding contracts to suppliers without bidding.and awarding contracts to suppliers without bidding.

Accepting gifts such as expensive perfumery, cloths,Accepting gifts such as expensive perfumery, cloths,

dinners, function cards, foreign trips, liquor, giftdinners, function cards, foreign trips, liquor, gift

coupon during festivals and holidays season.coupon during festivals and holidays season.

Accepting on sharing basis indenting commissionAccepting on sharing basis indenting commission

within or outside the countrywithin or outside the country Bid rigging, accepting bribes, theft and tax evasion,Bid rigging, accepting bribes, theft and tax evasion,

and accepting large sums of cash.and accepting large sums of cash.


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Allegations of improper Behaviour by BuyerAllegations of improper Behaviour by BuyerAllegations of improper Behaviour by BuyerAllegations of improper Behaviour by Buyer

Payment processing on receipt of kickbackPayment processing on receipt of kickback Approval of product quality on receipt of kickbackApproval of product quality on receipt of kickback

Accepting less quantity of goods in exchange ofAccepting less quantity of goods in exchange of

bribesbribes

Accepting lot of bribes in acceptance enlistment ofAccepting lot of bribes in acceptance enlistment of

approved suppliers or contractorsapproved suppliers or contractors

Benami Transaction through their own respectiveBenami Transaction through their own respective

companiescompanies Opening their own respective buying houses orOpening their own respective buying houses or

agency and making the purchases from them.agency and making the purchases from them.


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Guidelines for Ethical Behaviour in PurchasingGuidelines for Ethical Behaviour in PurchasingGuidelines for Ethical Behaviour in PurchasingGuidelines for Ethical Behaviour in Purchasing

The National Association for Purchasing ManagersThe National Association for Purchasing Managers(NAPM) has developed a set of three principles and(NAPM) has developed a set of three principles and

12 standards to help guide ethical behaviour in12 standards to help guide ethical behaviour in

purchasing. These are the principles:purchasing. These are the principles:

Loyalty to your organizationLoyalty to your organization

Justice to those with whom you dealJustice to those with whom you deal

Faith in your professionFaith in your profession

From these principles are derived the NAPMFrom these principles are derived the NAPMstandards of purchasing practice (domestic andstandards of purchasing practice (domestic and

international)international)


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Avoid the intent and appearance of unethical orAvoid the intent and appearance of unethical orcompromising practice in relationships, actions, andcompromising practice in relationships, actions, andcommunicationscommunications

Demonstrate loyalty to the employer by diligently followingDemonstrate loyalty to the employer by diligently followingthe lawful instructions of the employer, using reasonable carethe lawful instructions of the employer, using reasonable care

and only authority granted.and only authority granted. Refrain from any private business or professional activityRefrain from any private business or professional activity

that would create a conflict between personal interests andthat would create a conflict between personal interests andthe interests of the employerthe interests of the employer

Refrain from soliciting or accepting money, loans, credits, orRefrain from soliciting or accepting money, loans, credits, orprejudicial discounts, and the acceptance of gifts,prejudicial discounts, and the acceptance of gifts,entertainment favours, or services from present or potentialentertainment favours, or services from present or potentialsuppliers that might influence or appear to influencesuppliers that might influence or appear to influence

purchasing decisions.purchasing decisions.


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Handle confidential or proprietary informationHandle confidential or proprietary informationbelonging to employers or suppliers with due carebelonging to employers or suppliers with due careand proper consideration of ethical and legaland proper consideration of ethical and legalramifications and governmental regulationramifications and governmental regulation

Promote positive supplier relationships throughPromote positive supplier relationships throughcourtesy and impartiality in all phases of thecourtesy and impartiality in all phases of thepurchasing cycle.purchasing cycle.

Refrain from reciprocal agreements that restrainRefrain from reciprocal agreements that restrain

competitioncompetition Know and obey the letter and spirit of lawsKnow and obey the letter and spirit of laws

governing the purchasing function and remain alertgoverning the purchasing function and remain alertto the legal ramifications of purchasing decisions.to the legal ramifications of purchasing decisions.


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Encourage all segments of society to participate byEncourage all segments of society to participate bydemonstrating support for small, disadvantaged, anddemonstrating support for small, disadvantaged, andminorityminority--owned businesses.owned businesses.

Discourage purchasing involvement in employersDiscourage purchasing involvement in employers

sponsored programs of personal purchases that aresponsored programs of personal purchases that arenot business related.not business related.

Enhance the proficiency and stature of theEnhance the proficiency and stature of thepurchasing profession by acquiring and maintainingpurchasing profession by acquiring and maintaining

current technical knowledge and the highestcurrent technical knowledge and the higheststandards of ethical behaviorstandards of ethical behavior

Conduct international purchasing in accordance withConduct international purchasing in accordance withthe laws, customs, and practices of foreign countriesthe laws, customs, and practices of foreign countries


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Buyers DutiesBuyers DutiesBuyers DutiesBuyers Duties

Know the market for their commoditiesKnow the market for their commodities Understand the laws.... tax, contract, patent..Understand the laws.... tax, contract, patent..

Process purchase requisitions and quotation requestsProcess purchase requisitions and quotation requests

Make supplier selectionsMake supplier selections Negotiate prices and conditions of saleNegotiate prices and conditions of sale

Place and followPlace and follow--up on purchase ordersup on purchase orders

Maintain ethical behaviorMaintain ethical behavior


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MakeMake--oror--Buy AnalysisBuy AnalysisMakeMake--oror--Buy AnalysisBuy Analysis

Considerations in makeConsiderations in make--oror--buy decisions:buy decisions: Lower costLower cost -- purchasing or production?purchasing or production?

Better qualityBetter quality -- supplier or insupplier or in--house?house?

MoreMore--reliable deliveriesreliable deliveries -- supplier or insupplier or in--house?house? What degree of vertical integration is desirable?What degree of vertical integration is desirable?

Should distinctive competencies be outsourced?Should distinctive competencies be outsourced?

M k /B C id tiM k /B C id ti


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Make/Buy ConsiderationsMake/Buy Considerations

1.1. Maintain core competenciesMaintain core competencies

and protect personnel fromand protect personnel from

layofflayoff2.2. Lower production costLower production cost

3.3. Unsuitable suppliersUnsuitable suppliers

4.4. Assure adequate supplyAssure adequate supply

5.5. Utilize surplus labor andUtilize surplus labor andmake a marginalmake a marginal

contributioncontribution

1.1. Frees management to dealFrees management to deal

with its primary businesswith its primary business

2.2. Lower acquisition costLower acquisition cost3.3. Preserve supplierPreserve supplier

commitmentcommitment

4.4. Obtain technical orObtain technical or

management abilitymanagement ability5.5. Inadequate capacityInadequate capacity

Reasons for Making Reasons for Buying

M k /B C id tiM k /B C id ti C ti dC ti d


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Make/Buy ConsiderationsMake/Buy Considerations -- ContinuedContinued

6.6. Obtain desired quantityObtain desired quantity

7.7. Remove supplier collusionRemove supplier collusion

8.8. Obtain a unique item thatObtain a unique item thatwould entail a prohibitivewould entail a prohibitive

commitment from thecommitment from the

suppliersupplier

9.9. Protect proprietary design orProtect proprietary design orqualityquality

10.10. Increase or maintain size ofIncrease or maintain size of

companycompany

6.6. Reduce inventory costsReduce inventory costs

7.7. Ensure flexibility andEnsure flexibility and

alternate source of supplyalternate source of supply8.8. Inadequate managerial orInadequate managerial or

technical resourcestechnical resources

9.9. ReciprocityReciprocity

10.10. Item is protected by patent orItem is protected by patent ortrade secrettrade secret

Reasons for Making Reasons for Buying

E l M kE l M k BBE l M kE l M k BB


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Example: MakeExample: Make--oror--BuyBuyExample: MakeExample: Make--oror--BuyBuy

A firm manufactures a product that contains aA firm manufactures a product that contains apart requiring heat treatment. An analyst is trying topart requiring heat treatment. An analyst is trying to

decide whether it is more economical to buy the heatdecide whether it is more economical to buy the heat

treating service or perform the treatment in house.treating service or perform the treatment in house.

Pertinent data is shown on the next slide.Pertinent data is shown on the next slide.If part quality and delivery performance are aboutIf part quality and delivery performance are about

the same for the two alternatives, which alternativethe same for the two alternatives, which alternative

should be selected?should be selected?



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PurchasePurchase

HeatHeat--TreatTreat HeatHeat--TreatTreat

InIn--HouseHouse ServiceService

Number of parts annuallyNumber of parts annually 5,0005,000 5,0005,000Fixed cost per yearFixed cost per year $25,000$25,000 $0$0

Variable cost per partVariable cost per part $13.20$13.20 $17.50$17.50



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Compute the total cost for each alternativeCompute the total cost for each alternative

TC = FC + vQTC = FC + vQ

TCTC11 = FC= FC11 + v+ v11Q = 25,000 + 13.20(5,000) = $91,000Q = 25,000 + 13.20(5,000) = $91,000

TCTC22 = FC= FC22 + v+ v22Q = 0 + 17.50(5,000) = $87,500Q = 0 + 17.50(5,000) = $87,500

The firm should buy the heatThe firm should buy the heat--treating service (thetreating service (the

second alternative).second alternative).

continuedcontinued



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The analyst has assumed that 5,000 parts per yearThe analyst has assumed that 5,000 parts per yearwill require heat treatment. By how many parts canwill require heat treatment. By how many parts can

the firms requirements increase or decrease beforethe firms requirements increase or decrease before

inin--house heat treating is more economical? Shouldhouse heat treating is more economical? Should

the analyst rethink his/her decision?the analyst rethink his/her decision?

E ample: MakeE ample: Make oror BBE ample: MakeE ample: Make oror BB


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Compute the breakCompute the break--even parts quantityeven parts quantity

FCFC11 + v+ v11Q = FCQ = FC22 + v+ v22QQ

Q = (FCQ = (FC11 -- FCFC22)/(v)/(v22-- vv11))

Q = (25,000Q = (25,000 0)/(17.500)/(17.50 13.20)13.20)Q = 5,814Q = 5,814

If the firms annual parts requirement increasesIf the firms annual parts requirement increases

by 814 (about 16%) or more, inby 814 (about 16%) or more, in--house heat treatmenthouse heat treatmentwould be more economical. The analyst should givewould be more economical. The analyst should give

the decision more thought.the decision more thought.

LogisticsLogisticsLogisticsLogistics


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LogisticsLogisticsLogisticsLogistics

LogisticsLogistics usually refers to management of:usually refers to management of: the movement of materials within the factorythe movement of materials within the factory

the shipment of incoming materials from suppliersthe shipment of incoming materials from suppliers

the shipment of outgoing products to customersthe shipment of outgoing products to customers

Movement of Materials within FactoriesMovement of Materials within FactoriesMovement of Materials within FactoriesMovement of Materials within Factories


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Movement of Materials within FactoriesMovement of Materials within FactoriesMovement of Materials within FactoriesMovement of Materials within Factories

IncomingIncoming

VehiclesVehicles

ReceivingReceiving

DockDock

QualityQuality

ControlControlWarehouseWarehouse

WorkWork

CenterCenter

OtherWorkOtherWork

CentersCentersPackagingPackaging

FinishedFinished

GoodsGoods

ShippingShippingShippingShipping

DockDock

OutgoingOutgoing

VehiclesVehicles

The typical locations from/to which material is moved:The typical locations from/to which material is moved:

Shipments To and From FactoriesShipments To and From FactoriesShipments To and From FactoriesShipments To and From Factories


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TrafficTraffic Traffic departmentsTraffic departments routinely examine shippingroutinely examine shipping

schedules and select:schedules and select:

shipping methodsshipping methods

time tablestime tables ways of expediting deliveriesways of expediting deliveries

Traffic managementTraffic management is a specialized field requiringis a specialized field requiring

technical training in Department of Transportationtechnical training in Department of Transportation

(DOT) and Interstate Commerce Commission(DOT) and Interstate Commerce Commission

(ICC) regulations and rates.(ICC) regulations and rates.



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DistributionDistribution DistributionDistribution, or physical distribution, is the, or physical distribution, is the

shipment of finished goods through the distributionshipment of finished goods through the distribution

system to customers.system to customers.

AA distribution systemdistribution system is the network of shippingis the network of shipping

and receiving points starting with the factory andand receiving points starting with the factory and

ending with the customers.ending with the customers.



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Distribution Requirements PlanningDistribution Requirements Planning DRP is the planning for the replenishment ofDRP is the planning for the replenishment of

regional warehouse inventories.regional warehouse inventories.

DRP uses MRPDRP uses MRP--type logic to translate regionaltype logic to translate regional

warehouse requirements into central distributionwarehouse requirements into central distribution--

center requirements, which are then translated intocenter requirements, which are then translated into

gross requirements in the MPS at the factory.gross requirements in the MPS at the factory.



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Distribution Requirements PlanningDistribution Requirements Planning Scheduled receiptsScheduled receipts are previouslyare previously--placed orders thatplaced orders that

are expected to arrive in a given weekare expected to arrive in a given week

Planned receipt of shipmentsPlanned receipt of shipments are orders planned, butare orders planned, but

not yet placed, for the futurenot yet placed, for the future

Projected ending inventoryProjected ending inventory is computed as:is computed as:

Previous weeks projected ending inventoryPrevious weeks projected ending inventory

+ Planned receipt of shipments in current week+ Planned receipt of shipments in current week + Scheduled receipt of shipments in current week+ Scheduled receipt of shipments in current week

---- Forecasted demand in current weekForecasted demand in current week



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DRP TimeDRP Time--Phased Order Point RecordPhased Order Point Record

Forecasted demand (units)Forecasted demand (units)

Scheduled receiptsScheduled receipts

Projected ending inventoryProjected ending inventory

Planned receipt of shipmentsPlanned receipt of shipments

Planned orders for shipmentsPlanned orders for shipments

Region. Warehouse #1Region. Warehouse #1 LT = 1LT = 1

Std. Quantity = 50 SS = 10Std. Quantity = 50 SS = 10

6060

--11

8080

5050

3030

4040

4040

11 22 33

3030

50505050

50505050

303020201010

4040

5544

4040

WeekWeek

Example: DRPExample: DRPExample: DRPExample: DRP


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Products are shipped from a companys mainProducts are shipped from a companys maindistribution center (adjacent to the factory) to twodistribution center (adjacent to the factory) to two

regional warehouses. The DRP records on the nextregional warehouses. The DRP records on the next

two slides showtwo slides show for the two regional warehousefor the two regional warehouse

the forecasted demand, scheduled receipts, and lastthe forecasted demand, scheduled receipts, and lastweeks projected ending inventories for a singleweeks projected ending inventories for a single

product.product.

The third upcoming slide showsThe third upcoming slide shows for the mainfor the main

distribution centerdistribution center scheduled receipts and lastscheduled receipts and lastweeks projected ending inventory for the sameweeks projected ending inventory for the same

product. Complete the DRP records.product. Complete the DRP records.



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DRP Record forDRP Record for RegionalWarehouse #1RegionalWarehouse #1








200200

--11

100100

8080 100100

11 22 33

8080 6060

5544

100100

WeekWeek



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DRP Record forDRP Record for RegionalWarehouse #2RegionalWarehouse #2








220220

--11

200200

100100 200200

11 22 33

200200 240240

5544

200200

WeekWeek



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DRP Record forDRP Record for Main Distribution CenterMain Distribution Center

Gross Requirements (units)Gross Requirements (units)





Main Distrib. CenterMain Distrib. Center LT = 1LT = 1


250250

--11

500500

11 22 33 5544

WeekWeek



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Completed DRP Record forCompleted DRP Record for RegionalWarehouse #1RegionalWarehouse #1








200200

--11

220220

100100

8080

100100

120120

100100

11 22 33

8080

100100

100100

100100

80808080140140

6060

5544

100100

WeekWeek



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Completed DRP Record forCompleted DRP Record for RegionalWarehouse #2RegionalWarehouse #2








220220

--11

200200

320320

200200

100100

200200

120120

200200

11 22 33

200200

200200200200200200

200200

80808080120120

240240

5544

200200

WeekWeek



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DRP Record for Main Distribution CenterDRP Record for Main Distribution Center The gross requirement ( in row 1) for any weekThe gross requirement ( in row 1) for any week

is determined by summing the planned orders foris determined by summing the planned orders forshipment for the same week at the two regionalshipment for the same week at the two regional

warehouseswarehouses These gross requirements at the MDC are input toThese gross requirements at the MDC are input to

the master production schedule in the factorythe master production schedule in the factory

In other words, the timing and quantities ofIn other words, the timing and quantities of

production in the factory are linked to the timingproduction in the factory are linked to the timingand quantities of demand at the regionaland quantities of demand at the regionalwarehouseswarehouses



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Completed DRP Record forCompleted DRP Record for Main Distribution CenterMain Distribution Center






Main Distrib. CenterMain Distrib. Center LT = 1LT = 1


250250

--11

550550

500500

200200

500500

250250

300300

11 22 33

200200

500500

450450450450550550

100100

5544

WeekWeek



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pppp

Distribution Resource PlanningDistribution Resource Planning Distribution resource planningDistribution resource planning extends DRP soextends DRP so

that the key resources of warehouse space,that the key resources of warehouse space,

workers, cash, and vehicles are provided in theworkers, cash, and vehicles are provided in the

correct quantities at the correct times.correct quantities at the correct times.

Analyzing Shipping DecisionsAnalyzing Shipping DecisionsAnalyzing Shipping DecisionsAnalyzing Shipping Decisions


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y g pp gy g pp gy g pp gy g pp g

The Transportation ProblemThe Transportation Problem Problem involves shipping a product from severalProblem involves shipping a product from several

sources (ex. factories) with limited supply tosources (ex. factories) with limited supply to

several destinations (ex. warehouses) with demandseveral destinations (ex. warehouses) with demand

to be satisfiedto be satisfied

PerPer--unit cost of shipping from each source to eachunit cost of shipping from each source to each

destination is specifieddestination is specified

Optimal solution minimizes total shipping cost and

Optimal solution minimizes total shipping cost andspecifies the quantity of product to be shippedspecifies the quantity of product to be shipped

from each source to each destinationfrom each source to each destination

Example: Minimizing Shipping CostsExample: Minimizing Shipping CostsExample: Minimizing Shipping CostsExample: Minimizing Shipping Costs


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p g pp gp g pp gp g pp gp g pp g

Pacer produces computer monitors in its threePacer produces computer monitors in its threefactories and ships them to five regional warehouses.factories and ships them to five regional warehouses.

The factoryThe factory--toto--warehouse shipping costs per monitorwarehouse shipping costs per monitor

are:are:

WarehouseWarehouse

FactoryFactory AA BB CC DD EE

11 $2.10$2.10 $4.30$4.30 $3.60$3.60 $1.80$1.80 $2.70$2.70

22 4.904.90 2.602.60 3.503.50 4.504.50 3.703.7033 3.903.90 3.603.60 1.501.50 5.805.80 3.303.30

continuedcontinued



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The factories have the following capacitiesThe factories have the following capacities(monitors produced per month): 1 = 10,000;(monitors produced per month): 1 = 10,000;

2 = 20,000; and 3 = 10,000.2 = 20,000; and 3 = 10,000.

The warehouses need at least these numbers ofThe warehouses need at least these numbers of

monitors per month: A = 5,000; B = 10,000; C =monitors per month: A = 5,000; B = 10,000; C =10,000; D = 5,000; and E = 10,000.10,000; D = 5,000; and E = 10,000.

Use the POM Software Library to solve thisUse the POM Software Library to solve this

transportation problem.transportation problem.



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SolutionSolution

WarehouseWarehouse

FactoryFactory AA BB CC DD EE

11 5,0005,000 00 00 5,0005,000 0022 00 10,00010,000 00 00 10,00010,000

33 00 00 10,00010,000 00 00

Total monthly shipping cost = $97

,500Total monthly shipping cost = $9

7,500(Note: all warehouse demand is satisfied(Note: all warehouse demand is satisfied

and no factorys capacity is exceeded.)and no factorys capacity is exceeded.)


Innovations in LogisticsInnovations in LogisticsInnovations in LogisticsInnovations in Logistics


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gggg

New developments affecting logistics include:New developments affecting logistics include: AllAll--freight airportsfreight airports

InterInter--modal shippingmodal shipping

InIn--transit ratestransit rates Consolidated shipmentsConsolidated shipments

AirAir--freight and trucking deregulationfreight and trucking deregulation

Advanced logistics softwareAdvanced logistics software

WarehousingWarehousingWarehousingWarehousing


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gggg

WarehousingWarehousing is the management of materials whileis the management of materials whilethey are in storage.they are in storage.

Warehousing activities include:Warehousing activities include:

StoringStoring

DispersingDispersing

OrderingOrdering

AccountingAccounting

WarehousingWarehousingWarehousingWarehousing


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Record keeping within warehousing requires aRecord keeping within warehousing requires a stockstockrecordrecord for each item that is carried in inventories.for each item that is carried in inventories.

The individual item is called aThe individual item is called a stockstock--keeping unitkeeping unit

(SKU).(SKU).

Stock records are running accounts that show:Stock records are running accounts that show:

OnOn--hand balancehand balance

Receipts and expected receiptsReceipts and expected receipts

Disbursements, promises, and allocationsDisbursements, promises, and allocations

Inventory AccountingInventory AccountingInventory AccountingInventory Accounting


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In the past, inventory accounting was based on:In the past, inventory accounting was based on: periodic inventory accounting systemsperiodic inventory accounting systems ---- periodicperiodic

(end(end--ofof--day) updating of inventory recordsday) updating of inventory records

physical inventory countsphysical inventory counts ---- periodic (endperiodic (end--ofof--year)year)

physical counting of all SKUs at one timephysical counting of all SKUs at one time

Today, more and more firms are using:Today, more and more firms are using:

perpetual inventory accounting systemsperpetual inventory accounting systems ---- realreal--timetime

updating of records as transactions occurupdating of records as transactions occur cycle countingcycle counting ---- ongoing (daily or weekly) physicalongoing (daily or weekly) physical

counting of different SKUscounting of different SKUs

Example: Cycle CountingExample: Cycle CountingExample: Cycle CountingExample: Cycle Counting


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A company is implementing a cycleA company is implementing a cycle--countingcounting program. ClassA items will be counted monthly, program. ClassA items will be counted monthly,

Class B items will be counted quarterly, and Class CClass B items will be counted quarterly, and Class C

items will be counted semiitems will be counted semi--annually.annually.

5% of the firms inventory items are classified as5% of the firms inventory items are classified asClass A, 20% are Class B, and 75% are Class C. IfClass A, 20% are Class B, and 75% are Class C. If

the firm has 16,000 different SKUs (unique inventorythe firm has 16,000 different SKUs (unique inventory

items), how many will need to be counted daily?items), how many will need to be counted daily?

Assume 200 days per year are available for cycleAssume 200 days per year are available for cyclecounting.counting.



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NumberNumberNumberNumber of Countsof Counts

ClassClass of Itemsof Items per Itemper Item Total CountsTotal Counts

of Itemof Item per Classper Class per Year per Year per Year per Year

AA 800800 1212 9,6009,600

BB 3,2003,200 44 12,80012,800

CC 12,00012,000 22 24,00024,000

TotalTotal 16,00016,000 46,40046,400



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Number of Inventory Items Counted DailyNumber of Inventory Items Counted Daily

= 46,400/200 = 232 items per day= 46,400/200 = 232 items per day

otal ounts per year=

Number of available days per year



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The cycleThe cycle--counting personnel must count 232counting personnel must count 232inventory items per day. If the average cycleinventory items per day. If the average cycle--countercounter

can count 24 items per day, how many counters arecan count 24 items per day, how many counters are

needed?needed?

Number of CycleNumber of Cycle--Counting Personnel RequiredCounting Personnel Required

= 232/24 = 9.67 or 10 counters= 232/24 = 9.67 or 10 counters

Number of items counted er d y=

Number of items er d y er counter

Top Selling Supply Chain Management SoftwareTop Selling Supply Chain Management SoftwareTop Selling Supply Chain Management SoftwareTop Selling Supply Chain Management Software


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In 198

0 a young engineer in Dallas named Sanjiv Sidhu saw aIn 198

0 a young engineer in Dallas named Sanjiv Sidhu saw abusiness opportunity in the scientific observation that even thebusiness opportunity in the scientific observation that even thesmartest people can only juggle as many as nine variablessmartest people can only juggle as many as nine variableswhen making decisions. With that in mind he developedwhen making decisions. With that in mind he developedcomputer software for shopcomputer software for shop--floor managers based on artificialfloor managers based on artificial

intelligence and advanced simulation models.F

ound in 1988

intelligence and advanced simulation models.F

ound in 1988

i2 Technologies Inc., develops software for factories toi2 Technologies Inc., develops software for factories tomanage the delivery of components and the shipment ofmanage the delivery of components and the shipment of

products.products. (www.i2.com)(www.i2.com)

1999 Information Week magazine, Product of the year awards.1999 Information Week magazine, Product of the year awards.

I2 Technologies Rhythm software owns 13

percent of theI2 Technologies Rhythm software owns 13

percent of themarket for supply chain management software with more thanmarket for supply chain management software with more than800 customer companies worldwide, including Compaq, Dell,800 customer companies worldwide, including Compaq, Dell,Ford, General Motors, CocaFord, General Motors, Coca--Cola, Black and Decker, IBM,Cola, Black and Decker, IBM,and Texas Instruments. The software helps companies to betterand Texas Instruments. The software helps companies to better

manage inventories and manufacturing capacities by usingmanage inventories and manufacturing capacities by using

SoftwareSoftware ------continuedcontinuedSoftwareSoftware ------continuedcontinued


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Simulation models instead of the rules of thumb that haveSimulation models instead of the rules of thumb that havetraditionally been applied to managing plants. The Rhythmtraditionally been applied to managing plants. The Rhythmsoftware also includes applications for productsoftware also includes applications for product

Product life cycle managementProduct life cycle management

Supply planning,Supply planning,

Demand planning, demand fulfillment,Demand planning, demand fulfillment,

Financial and operations planning,Financial and operations planning, And customer relationship managementAnd customer relationship management

A typical $ 1 billionA typical $ 1 billion--aa--year manufacturer carrying $250year manufacturer carrying $250million inventory can comfortably cut inventory to less thanmillion inventory can comfortably cut inventory to less than$100 million with better supply chain management. According$100 million with better supply chain management. Accordingto Mr. Sidhu the savings come from reduced borrowing, lowerto Mr. Sidhu the savings come from reduced borrowing, lowerstorage costs, and reduced risk of damage or obsolescence,.storage costs, and reduced risk of damage or obsolescence,.Companies can then reinvest much of the money in productCompanies can then reinvest much of the money in productdevelopment or building efficiencies.development or building efficiencies.

ExpeditingExpeditingExpeditingExpediting


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Expediting is the focusing of one or more personsExpediting is the focusing of one or more personsattention on a particular order or batch of materialsattention on a particular order or batch of materialsfor the purpose of speeding up the order through allfor the purpose of speeding up the order through allor part of the entire supply chain. Deor part of the entire supply chain. De--expeditingexpeditingmeans slowing down an order. Expediting or demeans slowing down an order. Expediting or de--expediting is necessary usually because unforeseenexpediting is necessary usually because unforeseenevents have caused an order for materials or productsevents have caused an order for materials or productsto be late or early. Some of these sort of events are:to be late or early. Some of these sort of events are:

A customer increased the quantity of productsA customer increased the quantity of products

ordered. The expanded order quantity now exceedsordered. The expanded order quantity now exceedsfinished goods inventory, and additional productsfinished goods inventory, and additional productsmust be quickly produced.must be quickly produced.



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A Supplier fails to ship an order for materials whenA Supplier fails to ship an order for materials when

promised. Emergency shipping procedures must bepromised. Emergency shipping procedures must beemployed in order to get the parts in house in time to avoidemployed in order to get the parts in house in time to avoid

a stockout or disruption of the production processes.a stockout or disruption of the production processes.

Parts being processed in heatParts being processed in heat--treat have encounteredtreat have encountered

technical difficulties. The batch must be quickly transferredtechnical difficulties. The batch must be quickly transferred

ahead of other materials if the annealing process is not toahead of other materials if the annealing process is not to

be delayed.be delayed.

After a special order for an electric generator has beenAfter a special order for an electric generator has been

started in production, the customer calls and wants to delaystarted in production, the customer calls and wants to delay

the shipment for three weeks. The work in process shouldthe shipment for three weeks. The work in process shouldbe slowed and rescheduled so that the product is completedbe slowed and rescheduled so that the product is completed

when the customer wants it shipped.when the customer wants it shipped.



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Expediting most often is necessary because of the uncertaintiesExpediting most often is necessary because of the uncertainties

presents in production systems; customer demand, materialpresents in production systems; customer demand, materialdelivery times; and indelivery times; and in--house processing times are but a few ofhouse processing times are but a few ofthese uncertainties. Material management must be flexiblethese uncertainties. Material management must be flexibleenough to accommodate these uncertainties by reactingenough to accommodate these uncertainties by reactingquickly when the unexpected happens. Expediting isquickly when the unexpected happens. Expediting is

periodically performed by all materials managementperiodically performed by all materials managementemployees, and this activity helps make supply chains flexible.employees, and this activity helps make supply chains flexible.

Expediting completes the materials cycle that proceeds fromExpediting completes the materials cycle that proceeds fromacquisition of materials to the delivery of finished goods intoacquisition of materials to the delivery of finished goods intocustomers hands. The means to change procedures, overridecustomers hands. The means to change procedures, override

policy, make telephone calls and collect past favours, devisepolicy, make telephone calls and collect past favours, devisequick solutions as they occur, and other tactics of expeditingquick solutions as they occur, and other tactics of expeditingare some of the important ways that managers made materialsare some of the important ways that managers made materialssystems work effectively and get the right quantity of the rightsystems work effectively and get the right quantity of the rightmaterial to the right place at the right time.material to the right place at the right time.

Measuring the Performance Materials ManagersMeasuring the Performance Materials ManagersMeasuring the Performance Materials ManagersMeasuring the Performance Materials Managers


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Level and value of inLevel and value of in--house inventorieshouse inventories Percentage of orders delivered on timePercentage of orders delivered on time

Number of stockoutsNumber of stockouts

Annual cost of materialsAnnual cost of materials

Annual cost of transportationAnnual cost of transportation

Annual cost of warehouseAnnual cost of warehouse

Number of customer complaintsNumber of customer complaints

Other factorsOther factors

Material Management Performance In Multinational CompaniesMaterial Management Performance In Multinational CompaniesMaterial Management Performance In Multinational CompaniesMaterial Management Performance In Multinational Companies


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Performance Criteria All Companies Multinational

Number of supplier for each items 5

Number of purchasing agent RS 100 mln. 5. .

Cost of purchasing as % of purchases . % 0.8%

Time required to perform an evaluation weeks 0. week

Time required to place an order 6 weeks . minut

Percentage of late deliveries % %

Percentage of defects 1.5% 0.0001%

Number of material stockout per year 00

EE--Business & Supply Chain ManagementBusiness & Supply Chain ManagementEE--Business & Supply Chain ManagementBusiness & Supply Chain Management


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Internet has grown and evolved, more and moreInternet has grown and evolved, more and morecompanies have become involved in ecompanies have become involved in e--busine